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Ben Kingsley Blog post by Ben Kingsley

RBA Rate Decision – December 2015

Yes, it is the first of December and I still have the remnants of my mustache from Movember. Trust me, it will be gone by tonight. Just a busy morning. Anyway, I’m not here to talk about my mustache and Movember but thank you to those who donated. It is very kind of you. Let’s talk about the RBA. As widely anticipated, and it is pretty much unanimous by most commentators that the cash rate would stay on hold and it did. Isn’t it interesting? Last month, 50% of commentators thought that they would see a rate drop and yet, one month later, everyone is saying, rates aren’t going anywhere. Now let’s talk about the negative commentary or data that we saw in the last few weeks.

Last week, we actually saw private CAPEX fall off a cliff. Now, that’s never good. 9.2% drop. We’ve never seen that type of number and if you dig a little deeper, obviously it is mining capex. So we anticipated that type of correction still not great and just also in the numbers, we saw a little bit of a drop in the service expenditure. That’s concerning so we want to watch that for the next quarter. But that’s pretty much if for the negative data. Let’s get into some of the positive data that we saw.

The big result was unemployment or the lack of in terms of unemployment moving from 6.2% – 5.9%. Almost 60,000 new jobs created in the last month. Now, a lot of people are questioning that data. I think it was probably around 12 – 18 months ago where we saw the ABS come out and say that the employment data wasn’t quite right so this could be something that they correct down the track but right now, still a very positive number. In fact, the actual employment rate is growing at 2.7% annually. Which is a fabulous number so let’s get upbeat.

It is coming into Christmas. Let’s also focus in on spending. We are starting to see some real confidence in people getting out there and spending their Christmas and that is a good sign for the economy. It helps obviously, with the GDP, it helps with job, people are working part time job over summer. It is all going to be good for the economy and that is what I’m here to do. We are going to talk it up a little bit. We don’t want to have negative sentiment. I’m with you Malcolm, in terms of, we can be on a good path here. It’s up to us to be able to do that. So, we are going to see, potentially the cash rate now, probably staying on hold for most of 2016. That’s being in the flavor of what most people are saying.

The other good news in the data is around of terms of trade. We are seeing some really good numbers in export going up and import being soft, or sluggish. We like that because obviously, this means good terms of trade. So generally speaking, the economy is looking good and we like that.

Now, let’s go global. The big news story is whether or not the Federal Reserve in the United States actually lift interest rates. Now, we think, like everyone else now that its being priced in, everyone knows what is going to happen. We think the equity markets will remain stable so we do think Janet Yallen will absolutely increase interest rates by .25 of a really low base and we can all get on with life. In other words, the world is not going to collapse. That’s an important message.

In terms of the property market, we are starting to see a slow down in the property market. Now a bad thing. We don’t want to see a complete fall off because we still need those construction jobs to come through but in terms of price growth, we see clearance rates in Melbourne and Sydney market start to bring back the sort of in that 60% range which means we’ve got a balanced market. That’s a good thing. It was getting ahead of itself so we are liking that. In terms of other markets around the nation, we expect Brisbane to have a fairly good time of it but watch the oversupply in the apartment market and we think Adelaide might also start to show some signs in terms of affordability and some growth in that particular market as well. So, all in all, Canberra is probably also good. Stay away from medium and high density apartments. That’s the stuff that we don’t want to be touching from a property point of view.

Now, that’s a wrap. I wish everyone a Merry Christmas and a safe New Year. Now, the Reserve Board don’t meet in January so we’ll be back in February next year to talk about rates and we would have a bit more data to analyse post-Christmas. Thanks for watching.

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